Olympic sponsorship: Gold medal or wooden spoon?

25th July 2012

Winning sponsorship gold

McDonalds and Coca-Cola are linked by more than their shunned status in a detox diet. They are both – often controversially – "worldwide partners" of the Olympics although it's unclear how many elite games players eat the burgers and drink the sugary liquid. And now both have reported poor trading figures.

McDonalds increased like for like sales by 3.7% in the second quarter. This beat most expectations although it was a slowdown from first quarter turnover growth. But the all important net income fell by 4% as margins came under pressure. The fast food firm blamed austerity in Europe, China's slowdown and capital expenditure on its outlets.

Coca-Cola's European bottling operation Coca-Cola Enterprises recorded a 6% fall by volume – it blamed bad weather as well as a new French tax on sugary drinks, described as an "ongoing marketplace challenge". The UK remained loyal – only a 4.5% volume drop. This all led to the European company's earnings slumping by a sixth from $246m to $205m.

Couch potatoes eat pizza

But not all fast food suffered. UK brand Domino's Pizza saw gains in both sales and profits . The home delivery firm did well providing sustenance to those watching European football from the rain free comfort of their own front rooms. Pre-tax profits in the six months to June 24 rose to £21.5m, from £19m with a massive 43.4% gain in online sales.

Domino's is not an Olympics sponsor and anyone trying to take a Domino's pepperoni or pineapple in original wrappings into an Olympics venue may risk confiscation of their snack.

The 24 corporate sponsors are arranged in three divisions – worldwide partners, London partners and London supporters. How much they each pay for the privilege of associating their logo with the event is buried beneath layers of total secrecy but it starts around $50m (£32m) while McDonalds is reputed to have spent $150m for exclusivity of branded food sales. The total is not far short of a billion pounds or nearly a tenth of the stated cost of the 2012 games.

Getting the sponsorship habit

Whether this use of their marketing spend is more worthwhile than other ways of attracting attention is far from clear. For some, it is habit – Coca-Cola has been backing the Olympics since 1928. McDonalds has been paying towards the event for nearly 40 years. If either withdrew, the organisers would invite rivals Pepsi Cola and Burger King to fill the gap. Also pulling out would attract unwanted questions. It is easier to carry on shelling out.

Other top level sponsors include computer maker Acer, Atos, the international IT company, Procter & Gamble, Dow Chemicals, upmarket watch group Omega, credit card concern Visa and Asian electronics makers Panasonic and Samsung. UK names at the next level down – London partner – include BP, BT, Lloyds TSB and British Airways.

Reputation at risk

Investors have to decide whether games participation is worthwhile either for profitability or reputation. The former is almost impossible to gauge – the costs are secret while the publicity benefits cannot be untangled from other advertising campaigns.

The downside is more on reputation issues. In the case of Dow Chemicals, the campaign against its inclusion as a sponsor due to its acquisition of Bhopal gas leaker Union Carbide was unsuccessful but it brought the tragic incident, which had been buried, back to the fore. The inclusion of Cadbury as well as McDonalds and Coca-Cola has put the spotlight on healthy eating. And Lloyds Banking Group must be praying it retains its status as the only big four bank not to have run into problems over the last month for at least the duration of the games. Barclays has had rate-rigging, HSBC the money laundering links while RBS/NatWest had computer chaos.

Share price reactions

This study looks at the share prices of three long term sponsors – Coca-Cola, McDonald's and Panasonic in both games and non-games years. The US food firms saw positive returns in four out of the last six games (from Seoul in 1988 to Beijing in 2008) ; Panasonic in just two. But when the attention is turned off – in non Olympic years – these companies do better. And the same applies to others which have backed the games with their cash. Only IBM and the now in Chapter 11 protection Eastman Kodak, among past and present sponsors, appear to have fared better in Olympic years.

Of course, there are other factors at work such as overall market moves in these periods but any additional investor interest seems to be marginal at best.

Sponsorship may work better in developing markets – Korea, China – than in established (and media-cynical) cities such as London.

This source is far from neutral but a release from Havas Sports & Entertainment suggests that sponsorship of the London Summer Olympic Games and Paralympic Games has already led to "stronger brand image and purchase intent for official sponsors' brands."